Pleasure Craft

Case 2 – Pleasure Craft

9/29/2011

COMM 420 – Advanced Financial Management Proposal

Background

PC, manufacturing has been operating in Canada for more than 40years, it manufacture snowmobiles and personal watercraft. The company has been very successful financially, but the board of directors felt the two segments were maturing and did not offer strong potential for growth, therefore they are considering an expansion of it business. One option was to manufacture small, front-end loaders which would be sold primarily to construction companies, farmers and ranchers, the military and municipal government. Although they would be selling to a market in which it had no sales experience, the company believes this new business would draw upon its existing strengths in small-engine manufacturing.

Description

The expansion into the front-end loaders or outboard motors would be an expensive undertaking necessitating the construction of a new manufacturing plant. The front-end loader would be sold to a market which the company has no sale experience, but the outboard motors would allow the company to remain in the leisure craft market and utilize it established selling network

Issues

Undertaking both projects was a possibility, but it would tax the company’s capital budget and put a great pressure on the company’s management. There are two major issues that we have anticipated; First, PC would have to build a new factory to manufacture front-end loaders. Secondly, the new factory to build outboard motors would last approximately 20 years. Major increment in capacity was not economical, but the company felt production could be increased with improvement in work methods. Also to remain up to date with technology, a major overhaul of the product would be required at the end of the tenth year.

Although difficult to estimate, it was expected that the company would have enough market power to raise prices by the inflation rate each year. All cost was also expected to...